Officials discussed five possible electoral outcomes and estimated volatility each could trigger

The Finance Ministry and the Reserve Bank of India are taking steps to ensure that the rupee does not lose or gain sharply against the dollar on May 16, when election results are declared.

If the rupee tanks, a perception problem about India’s economy will arise, a highly placed Finance Ministry official said, explaining the rationale behind the move.

A sharp rise in its value, on the other hand, could potentially hurt corporate balance sheets in case of contracts due to be settled during the day, he added.

On Tuesday, the rupee surged 37 paise to close at a nine-month high of 59.68 against the dollar on robust foreign capital inflows into equities after exit polls projected that the BJP-led National Democratic Alliance would form the next government.

A meeting between RBI Governor Raghuram Rajan and Finance Ministry officials here on Tuesday discussed five possible electoral outcomes and estimated how much volatility each of these results could trigger in the rupee, highly placed sources told The Hindu.

Based on the five assessments, they discussed the steps Dr. Rajan must take to avoid sudden sharp movements in the value of the rupee.

“Our analysis has shown that volatility in both foreign exchange and the stock market shoots up on election results day and this could cause settlement problems and payment issues, which we want to avoid,” a source said. The meeting decided the steps the stock market regulator Securities and Exchange Board of India and stock exchanges must take to avoid payment crises and broker defaults.

Sensex crashed 842 points on May 17, 2004, as a Congress-led alliance emerged victorious, and markets had to suspend trading.

On May 18, 2009, Sensex surged 2,110.79 points to close at 14,285.21 after news came in that a stable government would be formed at the Centre.

The rupee appreciated 300 paise, or about six per cent, within 18 trading days after the results in 2009.

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